IDEAS home Printed from https://ideas.repec.org/p/ucr/wpaper/201816.html
   My bibliography  Save this paper

Search and Credit Frictions in the Housing Market

Author

Listed:
  • Miroslav Gabrovski

    () (University of Hawaii at Manoa)

  • Victor Ortego-Marti

    () (Department of Economics, University of California Riverside)

Abstract

This paper develops a model of the housing market with search and credit frictions. The interaction between the two frictions gives rise to a novel channel through which the financial sector affects prices and liquidity in the housing market. Furthermore, an interesting feature of the model is that both frictions combined lead to multiple equilibria. A numerical exercise suggests that credit shocks have a relatively larger impact on mortgage debt and liquidity than on prices.

Suggested Citation

  • Miroslav Gabrovski & Victor Ortego-Marti, 2018. "Search and Credit Frictions in the Housing Market," Working Papers 201816, University of California at Riverside, Department of Economics.
  • Handle: RePEc:ucr:wpaper:201816
    as

    Download full text from publisher

    File URL: https://economics.ucr.edu/repec/ucr/wpaper/201816.pdf
    File Function: First version, 2018
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    1. Rubinstein, Ariel, 1982. "Perfect Equilibrium in a Bargaining Model," Econometrica, Econometric Society, vol. 50(1), pages 97-109, January.
    2. Mortensen, Dale & Pissarides, Christopher, 2011. "Job Creation and Job Destruction in the Theory of Unemployment," Economic Policy, Russian Presidential Academy of National Economy and Public Administration, vol. 1, pages 1-19.
    3. Craig Burnside & Martin Eichenbaum & Sergio Rebelo, 2016. "Understanding Booms and Busts in Housing Markets," Journal of Political Economy, University of Chicago Press, vol. 124(4), pages 1088-1147.
    4. Morris A. Davis, 2010. "housing and the business cycle," The New Palgrave Dictionary of Economics,, Palgrave Macmillan.
    5. Genesove, David & Han, Lu, 2012. "Search and matching in the housing market," Journal of Urban Economics, Elsevier, vol. 72(1), pages 31-45.
    6. Andra Ghent, 2012. "Infrequent Housing Adjustment, Limited Participation, and Monetary Policy," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 44(5), pages 931-955, August.
    7. Miroslav Gabrovski & Victor Ortego-Marti, 2018. "Housing Market Dynamics with Search Frictions," Working Papers 201804, University of California at Riverside, Department of Economics.
    8. L. Rachel Ngai & Silvana Tenreyro, 2014. "Hot and Cold Seasons in the Housing Market," American Economic Review, American Economic Association, vol. 104(12), pages 3991-4026, December.
    9. Kashiwagi, Masanori, 2014. "A search-theoretic model of the rental and homeownership markets," Journal of Housing Economics, Elsevier, vol. 26(C), pages 33-47.
    10. Robert Novy‐Marx, 2009. "Hot and Cold Markets," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 37(1), pages 1-22, March.
    11. Tauchen, George, 1986. "Finite state markov-chain approximations to univariate and vector autoregressions," Economics Letters, Elsevier, vol. 20(2), pages 177-181.
    12. Nash, John, 1950. "The Bargaining Problem," Econometrica, Econometric Society, vol. 18(2), pages 155-162, April.
    13. Robert E. Hall & Paul R. Milgrom, 2008. "The Limited Influence of Unemployment on the Wage Bargain," American Economic Review, American Economic Association, vol. 98(4), pages 1653-1674, September.
    14. Aaron Hedlund, 2014. "Illiquidity and its Discontents: Trading Delays and Foreclosures in the Housing Market," Working Papers 1417, Department of Economics, University of Missouri.
    15. Allen Head & Amy Hongfei Sun & Chenggang Zhou, 2016. "Default, Mortgage Standards And Housing Liquidity," Working Paper 1359, Economics Department, Queen's University.
    16. Etienne Wasmer & Philippe Weil, 2004. "The Macroeconomics of Labor and Credit Market Imperfections," American Economic Review, American Economic Association, vol. 94(4), pages 944-963, September.
    17. Pietro Garibaldi & Etienne Wasmer, 2005. "Equilibrium Search Unemployment, Endogenous Participation, And Labor Market Flows," Journal of the European Economic Association, MIT Press, vol. 3(4), pages 851-882, June.
    18. Robert Shimer, 2005. "The Cyclical Behavior of Equilibrium Unemployment and Vacancies," American Economic Review, American Economic Association, vol. 95(1), pages 25-49, March.
    19. Nicolas Petrosky-Nadeau & Etienne Wasmer, 2017. "Labor, Credit, and Goods Markets," Post-Print hal-01647732, HAL.
    20. Krainer, John, 2001. "A Theory of Liquidity in Residential Real Estate Markets," Journal of Urban Economics, Elsevier, vol. 49(1), pages 32-53, January.
    21. Karen Kopecky & Richard Suen, 2010. "Finite State Markov-chain Approximations to Highly Persistent Processes," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 13(3), pages 701-714, July.
    22. Monika Piazzesi & Martin Schneider, 2009. "Momentum Traders in the Housing Market: Survey Evidence and a Search Model," American Economic Review, American Economic Association, vol. 99(2), pages 406-411, May.
    23. repec:spo:wpecon:info:hdl:2441/8921 is not listed on IDEAS
    24. Allen Head & Huw Lloyd-Ellis & Hongfei Sun, 2014. "Search, Liquidity, and the Dynamics of House Prices and Construction," American Economic Review, American Economic Association, vol. 104(4), pages 1172-1210, April.
    25. Guillaume Rocheteau & Randall Wright & Cathy Zhang, 2018. "Corporate Finance and Monetary Policy," American Economic Review, American Economic Association, vol. 108(4-5), pages 1147-1186, April.
    26. Dale Mortensen & Eva Nagypal, 2007. "More on Unemployment and Vacancy Fluctuations," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 10(3), pages 327-347, July.
    27. Bachmann, Rudiger & Cooper, Daniel, 2014. "The ins and arounds in the U.S. housing market," Working Papers 14-3, Federal Reserve Bank of Boston.
    28. Christopher A. Pissarides, 2000. "Equilibrium Unemployment Theory, 2nd Edition," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262161877.
    29. Antonia Díaz & Belén Jerez, 2013. "House Prices, Sales, And Time On The Market: A Search‐Theoretic Framework," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 54, pages 837-872, August.
    30. Wheaton, William C, 1990. "Vacancy, Search, and Prices in a Housing Market Matching Model," Journal of Political Economy, University of Chicago Press, vol. 98(6), pages 1270-1292, December.
    31. repec:ucp:jpolec:doi:10.1086/697207 is not listed on IDEAS
    32. Andrew Caplin & John Leahy, 2011. "Trading Frictions and House Price Dynamics," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 43, pages 283-303, October.
    33. Stijn Van Nieuwerburgh & Pierre-Olivier Weill, 2010. "Why Has House Price Dispersion Gone Up?," Review of Economic Studies, Oxford University Press, vol. 77(4), pages 1567-1606.
    34. Hedlund, Aaron, 2016. "Illiquidity and its discontents: Trading delays and foreclosures in the housing market," Journal of Monetary Economics, Elsevier, vol. 83(C), pages 1-13.
    35. Lucas, Robert Jr. & Prescott, Edward C., 1974. "Equilibrium search and unemployment," Journal of Economic Theory, Elsevier, vol. 7(2), pages 188-209, February.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. repec:eee:jetheo:v:181:y:2019:i:c:p:361-381 is not listed on IDEAS
    2. Gabrovski, Miroslav & Ortego-Marti, Victor, 2019. "The cyclical behavior of the Beveridge Curve in the housing market," Journal of Economic Theory, Elsevier, vol. 181(C), pages 361-381.

    More about this item

    Keywords

    Housing market; Credit Frictions; Search and Matching; Multiple Equilibria; Mort- gages;

    JEL classification:

    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ucr:wpaper:201816. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Kelvin Mac). General contact details of provider: http://edirc.repec.org/data/deucrus.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.